BIwiki - When to Sell

There are four basic reasons you buy a stock and there are four basic reasons you might sell a stock.

You buy because all of the following are true:

You had extra money to invest.
You found a quality stock that was a leader in its industry
Based on your SSG judgment, the price of the stock suggested that the potential for return was adequate.
Based on your SSG judgment, the price of the stock suggested that the potential for loss was acceptable.

You consider selling because any of the following are true:

You want or need the money.
The quality (fundamentals) has serious problems.
It is grossly overvalued.
Replacing a stock would improve the quality or potential of your portfolio.

Reasons #2 and #3 are extreme examples of reason #4. They are the cases where it's pretty clear that bad things could result from continuing to hold the stock. Selling because of reasons #2 or #3 are the obvious things that everyone should do if they want to be at all serious about portfolio management.

Reason #4 is more general. It includes the case where there isn't anything wrong with an existing stock but you've identified a significantly better opportunity. Reason #4 is what the NAIC "challenge tree" approach is all about. Taking opportunities to significantly improve the quality and/or potential return of a portoflio as those opportunities arise.

References

When To Sell: The Challenge of Reason (Sept. 2004, BI Magazine)

"Decision Time" in this Repair Shop article (Sept. 2005, BI Magazine) for another description of this (why #3 and #4 are really the same reason).

Hate to pay taxes and brokerage fees on your profits? Click here for some thoughts on the Costs of Selling.

For an excellent CompuServe Forum seminar by Nancy Crays on the subject of When to Sell, click here.

For Nancy's "When to Sell" worksheet, click here.

For Colleen Mulder-Seward's "When to Sell" checklist, click here or here or here.

For some ideas on "When to Sell" by Joe Smith, click here.

BI wiki

When to Sell

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